Will an Annuity Receive a Step-Up in Basis When Transferred to a Beneficiary?

Shawn Plummer

CEO, The Annuity Expert

No Step-Up in Basis for Annuities

Annuities, unlike some other assets, do not receive a step-up in basis when transferred to a beneficiary after the death of the original owner. This means that when your mother, as the beneficiary, inherits the non-qualified annuity from your deceased father, the basis in the annuity remains the same as it was during your father’s ownership.

Examples of Basis Calculation in Annuities

  1. Original Investment: If your father invested $50,000 in the annuity, that amount is considered the basis.
  2. Accumulation Phase: Suppose the annuity grew to $80,000. The growth ($30,000) is subject to tax when withdrawn.

Tax Implications for Beneficiaries

When your mother inherits the annuity:

  • Withdrawals: She will pay income tax on the earnings portion of the annuity (the growth) but not on the basis (the original investment).
  • Transfer Options: She may have options like continuing the annuity, taking a lump sum, or other withdrawal methods, each with its own tax implications.

Conclusion

In summary, there is no step-up in basis for non-qualified annuities when transferred to a beneficiary. The beneficiary will owe taxes on the growth of the annuity, not on the original investment. Understanding these tax implications is crucial for effective financial planning.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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